The most common myth about Chapter 13 is the idea you will pay back all of your debt in a payment plan. It is very rare that any Chapter 13 client will enter a plan that pays back all of their debt.
Your payment is determined primarily by your budget. In a Chapter 7, the trustee is looking for assets. In a Chapter 13, the trustee is looking for extra money in your monthly budget. If we can show a lean budget, then your payment will be lower. After you complete the final payment, all of your remaining debt is discharged. Most of our clients end up paying less than 9% of their total unsecured non-priority debt. That includes medical debt and credit cards.
The total amount of money you must pay each month is the sum of 6 different categories. The total of these categories is divided by the number of months you will be in the plan to arrive at your monthly payment.
- Trustee Fees – This is the amount you must pay to the trustee each month to administer the case. This is approximately $70.00. Every case will have a payment that is at least this amount.
- Attorney Fees – Your attorney will be with you each year throughout your Chapter 13. The work he or she will do can be extensive. The standard fee in this state for Chapter 13 work is between $3,000 and $4,500. Depending on how much you pay up front, the remainder is put into your plan. In most cases, the remaining amount is about $2,000.
- Priority Debt – Priority debt cannot be discharged. Priority debt can include recent taxes, back child support, domestic support or government fines. All of this debt must be paid in full in your plan.
- Mortgages – If you wish to keep property that collateralizes a loan, you must continue making the monthly payment. Your attorney will help you determine if the payment should be part of your plan payment. People may choose Chapter 13 to catch up on a home mortgage. The amount you are behind will be paid over the life of the plan as you begin making your regular mortgage payment as well.
- Value of Non-exempt Property – In a Chapter 7, you will surrender any non-exempt property that you have. That is why it is important to consult with an attorney before you file to protect your property. If, however, you wish to keep non-exempt property, you may choose to file a Chapter 13. However, the value of that property must be paid through the life of the plan. This is called a liquidation analysis. For example, if you wish to keep a $3,600 ATV that you own free and clear and you enter into a 3 year plan, your payment will go up by $100, or $3,600 divided by 36 payments.
- Budget Excess – Finally, the trustee will examine your budget to determine if any money is left over after taking out all reasonable expenses. If your income adds up to $4,000 per month and your acceptable expenses add up to $3,950, then $50 will be added to your payment. The list of reasonable expenses and the amounts you can claim can vary case to case. The trustee will look for any expenses that are beyond national and local standards or are arguably unnecessary. Our job is to identify all of your necessary expenses in your budget that will be accepted by the court and the trustee. If an expense is unusual but necessary, we can argue before the judge to allow it and help keep your payment low.
The last two categories are the only source of money that will be paid to the unsecured non-priority creditors in your case. So, for example, if you have $20,000 in credit card and medical debt, it is likely you will return 0% to these creditors if you only have exempt property and a very tight budget.
Call us at 303-586-6912 or contact us online to set up a time to come in and talk with our bankruptcy lawyers.